Substitute House Bill No. 6658
          Substitute House Bill No. 6658

              PUBLIC ACT NO. 97-113


AN  ACT  CONCERNING PRIORITY OF DISTRIBUTION UNDER
THE INSURERS REHABILITATION AND LIQUIDATION ACT.


    Be  it  enacted  by  the  Senate  and House of
Representatives in General Assembly convened:
    Section  1.  Section  38a-944  of  the general
statutes  is  repealed  and   the   following   is
substituted in lieu thereof:
    (a)  The  priority  of  distribution of claims
from the insurer's estate shall be  in  accordance
with  the  order  in which each class of claims is
[herein] set forth IN THIS SECTION. Every claim in
each class shall be paid in full or adequate funds
retained for such payment before  the  members  of
the  next class receive any payment. No subclasses
shall be established within any class. No claim by
a  shareholder,  policyholder  or  other  creditor
shall be  permitted  to  circumvent  the  priority
classes through the use of equitable remedies. The
order of distribution of claims shall be:
    (1)   Class  1.  The  costs  and  expenses  of
administration, including but not limited  to  the
following:  (A)  The actual and necessary costs of
preserving  or  recovering  the  assets   of   the
insurer;   (B)   compensation   for  all  services
rendered in the  liquidation;  (C)  any  necessary
filing  fees;  (D) the fees and mileage payable to
witnesses; (E)  authorized  reasonable  attorney's
fees  and  other professional services rendered in
the  rehabilitation  and  liquidation;   (F)   the
reasonable  expenses  of a guaranty association or
foreign guaranty association in handling claims.
    [(2)   Class  2.  Reasonable  compensation  to
employees for services  performed  to  the  extent
that  they  do  not  exceed two months of monetary
compensation and represent  payment  for  services
performed within one year before the filing of the
petition for  liquidation  or,  if  rehabilitation
preceded  liquidation,  within one year before the
filing  of  the   petition   for   rehabilitation.
Officers  and  directors  shall not be entitled to
the benefit of this priority, except as  otherwise
approved  by  the  liquidator  and the court. Such
priority shall be in lieu  of  any  other  similar
priority  which  may  be  authorized  by law as to
wages or compensation of employees.
    (3)]   (2)  Class  [3]  2.  All  claims  under
policies including such claims of the  federal  or
any state or local government for losses incurred,
including third party claims and all claims  of  a
guaranty    association    or   foreign   guaranty
association OTHER THAN THOSE INCLUDED IN CLASS  1.
All  claims under life insurance policies, annuity
contracts  and  funding  agreements,  whether  for
death  proceeds,  annuity  proceeds, or investment
values shall  be  treated  as  loss  claims.  That
portion  of any loss, indemnification for which is
provided by other benefits or advantages recovered
by  the  claimant,  shall  not be included in this
class, other than benefits or advantages recovered
or    recoverable   in   discharge   of   familial
obligations of support or by way of succession  at
death  or  as  proceeds  of  life insurance, or as
gratuities. No  payment  by  an  employer  to  his
employee shall be treated as a gratuity.
    (3)  CLASS 3. CLAIMS OF THE FEDERAL GOVERNMENT
EXCEPT THOSE UNDER CLASS 2.
    (4)   CLASS   4.  REASONABLE  COMPENSATION  TO
EMPLOYEES FOR SERVICES  PERFORMED  TO  THE  EXTENT
THAT  THEY  DO  NOT  EXCEED TWO MONTHS OF MONETARY
COMPENSATION AND REPRESENT  PAYMENT  FOR  SERVICES
PERFORMED WITHIN ONE YEAR BEFORE THE FILING OF THE
PETITION FOR  LIQUIDATION  OR,  IF  REHABILITATION
PRECEDED  LIQUIDATION,  WITHIN ONE YEAR BEFORE THE
FILING  OF  THE   PETITION   FOR   REHABILITATION.
OFFICERS  AND  DIRECTORS  SHALL NOT BE ENTITLED TO
THE BENEFIT OF THIS PRIORITY, EXCEPT AS  OTHERWISE
APPROVED  BY  THE  LIQUIDATOR  AND THE COURT. SUCH
PRIORITY SHALL BE IN LIEU  OF  ANY  OTHER  SIMILAR
PRIORITY  WHICH  MAY  BE  AUTHORIZED  BY LAW AS TO
WAGES OR COMPENSATION OF EMPLOYEES.
    [(4)]   (5)   Class   [4]   5.   Claims  under
nonassessable policies  for  unearned  premium  or
other   premium  refunds  and  claims  of  general
creditors, including claims of ceding and assuming
companies  in  their  capacity as such, and claims
against  the  insurer  for  liability  for  bodily
injury or for injury to or destruction of tangible
property which are not under policies.
    [(5)]  (6) Class [5] 6. Claims of [the federal
or] any state or local  government,  except  those
under  class [3] 2. Claims, including those of any
SUCH  governmental   body   for   a   penalty   or
forfeiture, shall be allowed in this class only to
the extent of the pecuniary  loss  sustained  from
the  act,  transaction  or proceeding out of which
the penalty or forfeiture arose,  with  reasonable
and actual costs occasioned thereby. The remainder
of such claims shall be postponed to the class  of
claims   under   subdivision  [(7)]  (8)  of  this
subsection.
    [(6)]  (7)  Class  [6] 7. Claims filed late or
any  other  claims   other   than   claims   under
subdivisions   [(7)  and]  (8)  AND  (9)  of  this
subsection.
    [(7)]    (8)   Class   [7]   8.   Surplus   or
contribution notes, or  similar  obligations,  and
premium  refunds  on assessable policies. Payments
to members of domestic mutual insurance  companies
shall be limited in accordance with law.
    [(8)]   (9)   Class   [8]  9.  The  claims  of
shareholders or other owners in their capacity  as
shareholders.
    (b)  Every  claim  under  a  separate  account
agreement providing, in effect, that the assets in
the  separate account shall not be chargeable with
liabilities arising out of any other  business  of
the  insurer  shall be satisfied out of the assets
in the separate  account  equal  to  the  reserves
maintained in such account for such agreement and,
to  the  extent,  if  any,  not  fully  discharged
thereby,  shall  be treated as a class [3] 2 claim
against the  estate.  For  the  purposes  of  this
section,  the  "insurer's  estate"  shall mean the
general assets of such  company  less  any  assets
held   in  separate  accounts  that,  pursuant  to
section 38a-433 or  38a-459,  are  not  chargeable
with liabilities arising out of any other business
of the insurer.
    Sec.  2.  This  act shall take effect from its
passage and shall apply to all insurer liquidation
proceedings  pending  on  or  after said effective
date.

Approved June 6, 1997